Wednesday, December 26, 2007

Great news about the real estate market!

I know it's hard for business journalists to believe, but for a lot of us, news of plummeting housing prices is fantastic news.

Reports of falling prices are always accompanied by words like grim, dire, anxiety, woe and meltdown (and it's unquestionably Bad News). In this fantasy world, everybody who's anybody already owns a house and that house is supposed to be their ticket to riches.

Until recently, Seattle-area homeowners could bask in the knowledge that their houses would appreciate handsomely. Median home prices rose 16 percent in 2005 and 21 percent in 2006, a Seattle Times analysis found.

When this year's final numbers are tallied, the median annual increase will probably be more like 2 or 3 percent, Seattle real-estate economist Matthew Gardner says. That puts Seattle ahead of many cities; still, it's the lowest appreciation rate in roughly a decade.

So a person who bought a house in Seattle at the start of 2005 saw his home's "value" increase by over 40% in 2 years and can look forward to only another 2-3% increase this year. The title of that article? Real-estate anxiety: What's next in '08?

Keep that in mind that when you hear that home prices could fall 30% - in that nightmare scenario that Seattle homeowner would simply break even.

Still, it's true, the half of the market that are looking to buy want to buy low - or at least buy something affordable. This may seem greedy to people who expected double-digit markups year after year - but anybody who thought that prices could climb several times faster than wages forever needs a lesson in basic economics.

[I]t's always wise to treat broker happy-talk skeptically, and that includes the NAR's prediction of a housing market rebound in 2008. But amid their blarney, the realtors do make some valid points about how much is right with the economics that support the buying and selling of homes. Unemployment remains low. Interest rates remain very attractive by historic standards. It may be a less-than-stellar time to sell a house, due to extraordinarily high inventory levels, but it sure is a great time to buy one. Since many homes are bought by first-timers, who needn't worry about selling a current house before they buy one, there is a pool of buyers who should stand ready to make offers.